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C O N F I D E N T I A L SECTION 01 OF 03 PARIS 001744
SIPDIS
E.O. 19528: DECL: 12/22/19
TAGS: EPETENRGEOCNZKZJRSFR
SUBJECT: FRANCE: SPECIAL ENVOY MORNINGSTAR'S ENERGY CONSULTATIONS
Ref. State 107194.
Classified by Econ Minister Counselor Seth Winnick for reasons 1.4
(B) and (D).
¶1. (C/NF) Summary. French officials and industry leaders support
diversifying energy supply/routes in Central Asia, market
competition, an Azerbaijan-Turkey agreement for gas supply and
transit issues. GDF-Suez joined Nord Stream and is interested in
Nabucco and the Shtokman project. Total SA emphasizes links between
Kazakhstan and Azerbaijan, criticized the terms for developing Iraqi
oil fields, and supports Iranian gas projects in the long-term. The
Total CEO considers refined products sanctions against Iran as
counterproductive and questions the U.S. message to Indian companies
vying for Iranian contracts. IEA highlights a sluggish recovery for
Ukraine and urges energy policy reform/restructuring for a
sustainable gas relationship with Russia. Gas is the default energy
option for Europe but long-term gas contracts need more flexibility.
End summary.
¶2. (U) On December 14-15, the Special Envoy for Eurasian Energy
(S/EEE) Richard Morningstar, met with GOF officials, industry leaders
and the IEA who gave an overview on current policies, activities, and
future challenges in the Eurasian energy markets and Iran/Iraq
(participants para 20).
GDF-Suez interest in Nabucco
----------------------------
¶3. (C/NF) GDF-Suez President Jean-Francois Cirelli expressed
interest in eventual participation in the Nabucco gas pipeline
project. A stake in Nabucco provides access to capacity in Central
Asia and insurance for getting the gas out, Cirelli argued. GDF-Suez
participation is doable in the next decade, once Nord Stream is
concluded, and on a step-by-step basis, he specified.
¶4. (C/NF) GDF-Suez wants to see big companies (like RWE) in the
project's partnership and an Azerbaijan-Turkey gas agreement.
Cirelli raised doubts that Azeri gas is sufficient and thinks
Iranian, Iraqi, and Turkman sources are "complicated." Cirelli
pointed out that Nabucco has been too politicized and there is less
urgency for it after the economic downturn/financial crisis.
Nord Stream now, Shtokman soon
------------------------------
¶5. (C/NF) GDF-Suez executives are negotiating with Gazprom for a
nine percent stake in Nord Stream. The company will have a purely
financial role with no operational, managerial or customer stakes in
the project, Cirelli noted. The deal represents a "Gazprom risk";
the Russian company controls prices, gas delivery, and the
infrastructure. However, the move serves a broader strategy to
strengthen GDF-Suez's industrial partnership with Gazprom. Cirelli
has his eye on the giant Shtokman field where GDF-Suez wants to
market LNG when it comes on stream, a project in which Gazprom holds
the majority interest.
¶6. (C/NF) GDF-Suez executives told us that Nord Stream folds into
the company's energy diversification business model; it will bring
more gas to northern Europe, reinforce interdependence between Europe
and Russia, and complement supply routes through Ukraine, objectives
consistent with USG interests.
Total SA on oil and gas links
-----------------------------
¶7. (C/NF) Total CEO Christophe de Margerie stressed to Ambassador
Rivkin and S/EEE the need for links between Kazakhstan and Azerbaijan
to get Kashagan crude to the market.
Southern Corridor Gas Pipelines
-------------------------------
¶8. (C/NF) On linking Turkmenistan to Azerbaijan, Total's legal
department is convinced that a pipeline would require approval by the
five Caspian Sea littoral states. De Margerie prefers gas tanker
shipments, a strategy that can also allay NGO criticisms on the
environmental impact of energy installations in the region.
¶9. (C/NF) Regarding Nabucco, the Total CEO said Turkey is a problem
and understood Azerbaijan will consider other options, including
Russia as a buyer. Turkey blocked Electricite de France (EDF) from
participating in Nabucco, he recalled, when it turned to South
Stream. South Stream allows EDF to work with Russia and compete with
Italy and Germany in the region, he claimed, and implied strongly
that the EDF decision to join South Stream was actually made at the
Elysee. Nabucco has no gas, -- a situation that could change if the
Chinese enter the deal --, and argued that current low gas prices
discourage investment in pipelines. The cost of accessing energy has
increased, he said, noting the Shtokman gas field will cost 30
PARIS 00001744 002 OF 003
billion euros. Financing is an issue for the industry, which is why
take-or-pay gas contracts are used, De Margerie explained.
Iraq - not interested, yet
--------------------------
¶10. (C/NF) On Iraq's second round of auctions for the rights to
develop oil fields, Total said the terms were not profitable for a
long-term investor. The flat fee per barrel the Iraqis offered for
developing the Majnoon and West Qurna fields was too low to recover
costs, De Margerie underscored, and investment costs are unknown.
The country lacks security, stability and a skilled work force, he
continued. In the end, Total joined the Chinese-led consortium and
got a 25 percent stake in the Halfaya field. Total supported opening
the Iraqi market but won't cut a big deal now; it will get its foot
in the door as a contractor and wait for better opportunities down
the road as an operator.
Iran: the U.S., the Indians
--------------------------
¶11. (C/NF) The Total CEO favored gas projects in Iran but said there
is no contract on the table, "it's worse than Iraq." Pursing gas
projects is "politically impossible," he conceded, but asked why the
USG did not support talks on gas projects. The U.S. position, S/EEE
told De Margerie, is that when we settle the nuclear issue with Iran,
gas projects will move forward.
¶12. (C/NF) De Margerie asked why nothing has been said to India's Oil
and Natural Gas Corporation which is active in Iranian energy
markets. He then pointed out the negative impact an embargo on
refined petroleum products would have on the Iranian people who are
in need of fuel; it will be a "disaster" for U.S.-French interests
and a plus for the Iranian regime. Fuel sanctions won't impact the
petroleum products market, he said, noting that the Indians and the
Chinese are replacing Total.
Total post-Copenhagen
----------------------
¶13. (C/NF) Total's long-term goal is to develop oil and gas
production more efficiently with an aim to reduce CO2 emissions, De
Margerie said. Total invests in research on renewable energy sources
(RES), he added. But he cautioned that RES development relies on
subsidies and commercial viability is decades away; RES can't replace
fossil fuels. World economic growth requires access to a number of
sources - gas, oil, nuclear, coal, De Margerie asserted. Copenhagen
negotiators need to remember the issue is "energy and the
environment," not just the latter, he concluded.
IEA on Ukraine/Russia prospects
-------------------------------
¶14. (C) IEA energy analyst Ian Cronshaw said Ukraine looks unstable
due to poor fundamentals (industrial output, inflation), although gas
policy changes could make important improvements post presidential
election (January 2010). Gas is still priced below cost for
households and utilities, Cronshaw observed. Ukraine has paid its
gas bill so far and atmospherics between Russia and Ukraine have
improved; relations are on a longer-term basis following a ten-year
supply agreement that is linked to international prices, he said.
However, for a sustainable gas relationship with Russia, Ukraine
energy policy reform and restructuring are essential: improve energy
efficiency, cost-reflective pricing, and transparency/governance.
¶15. (C/NF) Russia is feeling the decrease in European gas demand but
still relies on Ukraine for transit to meet peak needs in both gas
and power sectors, Cronshaw told us. European stocks are good, but
eastern and southern Europe would suffer if a prolonged supply
interruption occurs, he added. Tension persists between Russian gas
suppliers and European buyers, the IEA analyst noted. Europe shifted
to the spot market where gas is half the cost of Russian long-term
contracted prices. Moreover, the lack of flexibility of take-or-pay
contracts raises doubts about their commercial viability; we need to
think about alternative business model contracts, Cronshaw and
Ambassador Jones, IEA Executive Director commented.
Gas, Europe's energy by default
------------------------------
¶16. (C/NF) European energy security can be strengthened by an
integrated internal market, more robust interconnections and
reversible pipelines for transporting gas where it is needed,
Cronshaw stressed. The EU 27 must harmonize their regulatory
regimes, he highlighted. Given the investment requirements for South
Stream and the lack of big contracts, the project seems unrealistic
whereas Nord Stream will come through, Cronshaw predicted. Energy
diversification is the goal but EU governments struggle to finance
RES projects. Financing nuclear is a problem and coal is not
environmentally compatible; gas is the energy by default, he
PARIS 00001744 003 OF 003
concluded. Eighty percent of European power plants built in the last
10 years were gas, Cronshaw reported.
GOF gets the USG message
------------------------
¶17. (C/NF) On December 14, S/EEE described USG goals in Europe and
Central Asia (reftel). GOF officials provided a largely consistent
view that France sees European energy security strengthened by
internal energy market organization, increased interconnectors and
infrastructure projects. On South Stream, S/EEE noted that we
neither support nor oppose the pipeline but had doubts on its
technical and commercial viability. From a political symbolism
perspective, participation by the government-owned EDF lends
credibility to the project, S/EEE commented. He reiterated the
importance of Nabucco and the need to diversify gas resources and
bolster market competition in the region.
Comment
-------
¶18. (C) The French are not out front in realizing a European
concerted effort, but do share U.S. concerns over energy
diversification in Central Asia. French industrial firms' activity
supports the GOF's priority for a triangular relationship - Europe,
Central Asia, and Russia. Total SA, GDF-Suez, and EDF have a
foothold in the region's major projects: Nord Stream, South Stream,
Kashagan (Kazakhstan), Shtokman (Russia), Shah Deniz (Azerbajian).
¶19. (SBU) Meeting participants:
-- Georges Serre, Deputy Director General for Global Affairs,
Development and Partnerships (DGM), MFA; Sylvan Fourriere, Chef
Energy Pole; Christophe Sammartano, Energy Officer (Central Asia,
Russia, CIS) for the same directorate. Valerie Luebken, U.S. Desk
Officer, Office of American and Caribbean Affairs, MFA.
-- Pierre-Marie Abadie, Director for Energy, Directorate for Energy
and Climate Change, Ministry of Ecology, Energy, Sustainable
Development and the Sea (MEEDDM); Carole Lancereau, Head,
International Unit, Directorate for Energy and Climate Change, for
the same ministry.
-- Ambassador Richard Jones, Deputy Executive Director, IEA; Ian
Cronshaw, Head, Energy Diversification Division; Tim Gould, Program
Manager, Caspian, Caucasus, Southeast Europe, Directorate of Global
Energy Dialogue, IEA.
-- Jean-Francois Cirelli, Vice-Chairman and President, GDF-Suez;
Philippe Hochart, VP Caspian, Iran, Global Gas and LNG; Jean-Marie
Dauger, Executive VP; Denis Simmoneau, Diplomatic Advisor, GDF-Suez.
-- Christophe de Margerie, CEO Total SA; Hubert des Longchamps, VP,
International Relations, Total SA.
¶20. (SBU) This cable was cleared by Ambassador Richard Morningstar.
RIVKIN